Getting a property financed can be an overwhelming process. Sometimes borrowers don’t recognize the bumps in the road that will derail their project plans and loan schedule. Here is a list to help you see and remember the small, but important, details involved in getting a loan. These are the most common time sucking land mines that drag the loan process out (or even cause disqualification) along with tips to avoid them.
- Scheduling & Anticipating the Appraisal
Loans officially start when they are put into processing, which does not happen until appraisal reports are turned in or the application fee is paid. A loan will be delayed if there is an issue getting the appraisal. Sometimes a borrower will schedule an appraisal when the property is not available or repairs/rehab are incomplete. For example, someone may live in or on the property and will not allow the appraiser access to the property. The loan will be delayed if this happens. If the appraiser arrives and finds the home in the midst of rehab, the loan will also be delayed.
Another bump in the road related to the appraisal occurs when the value of the property is based on too little research. This usually leads to an inflated initial value. If the appraisal comes in lower than what the borrower expected, this will delay the loan process and can even halt it altogether.
Key: Be ready, careful, and deliberate about scheduling the appraisal. Coordinate with the current occupants and your contractor.
Key: Be really accurate from the start about the value of the property.
Procrastination, my favorite strategy, does not help when it comes to loan documentation; like taxes and even more than hearing protection, documentation is required. It is a terrible idea to wait to start gathering the documents necessary to move the loan process along until the appraisal comes in. Start by making a list of the documents you need as soon as you come up with your project and begin immediately, while the idea is hot, to gather them and check them off your list. Your goal is to have them ready as soon as your loan goes into processing.
Key: Gather the necessary documents when your idea is hot.
- Hazard: Wrong Policy Type or Amount
You might not think of hazard insurance in connection with your loan but obtaining hazard insurance is a very important component to securing a loan. Carefully study the types of coverage available and don’t just buy a policy to say you have it. Buy hazard insurance that covers 100% of the replacement cost of the property and calculate the premium carefully. Often the wrong type or amount of coverage is purchased, which will not only slow the loan down but can also potentially change your loan parameters (up to and including disqualification).
Key: Know your numbers. Buy hazard insurance that covers 100% of the replacement cost of your property
- Title Clouds
Liens, judgments, delinquent taxes, and mortgage releases are all common things that show up on a title. These things take time to clean up and drag the loan process out. Be sure to check your title for these attachments before you start your loan. If you have any clouds on the title, you’ll want to clean them up asap to keep your loan on schedule.
Key: Start early, Clean up the title ASAP.
Patience may be a virtue, but it is one that is often tested when you are eager to close a loan and get on with your project. To save your dream and your nerves, follow these tips: coordinate the appraisal, be accurate on the value, gather the necessary documents, buy the right insurance, and clean up that title.
I would be pleased to give you a hand, and I have funds available for lending.
Photo credit: Niklas Bildhauer CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0)